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Intangibles and Endogenous Firm Volatility over the Business Cycle

Hernan Moscoso Boedo and Pablo D'Erasmo ()

No 97, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This is a theory of endogenous volatility over the business cycle based on firm-level intangible expenditures. We propose a firm dynamics model with endogenous market participation. Firms that incur higher intangible expenses are able to serve more markets and diversify market-specific demand risk. The model is driven only by TFP shocks and captures the business cycle properties of firm-level volatility and intangibles expenditures. We empirically document that firm-level volatility is counter-cyclical and that intangible expenses are pro-cyclical. Consistent with our model, using data from the Kauffman Firm Survey and Compustat, we find that firm-level idiosyncratic volatility is negatively correlated with intangible expenditures.

Date: 2013
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Working Paper: Intangibles and Endogenous Firm Volatility over the Business Cycle (2011) Downloads
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More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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